N8/1 (e-mail)
15^th May, 2007

To: REPRESENTATIVES AT GENERAL MEETINGS
RECIPIENTS OF NAAMSA MEDIA RELEASES

Ladies and Gentlemen,

QUARTERLY REVIEW OF BUSINESS CONDITIONS : MOTOR VEHICLE MANUFACTURING INDUSTRY : 1^ST QUARTER, 2007

ATTACHED, for information purposes, is a copy of NAAMSA’s quarterly review of business conditions for the South African motor vehicle manufacturing industry, during the first quarter of 2007, as submitted to the Director-General, Department of Trade and Industry.

Latest revised industry vehicle sales, export and import statistics for 1995 through 2010 are reflected on the attachments to the submission.

Key features

• Record industry capital expenditure during 2006, projections for 2007 show planned investments to continue at near record levels.
• Steady growth in production set to continue during 2007on the back of further growth in vehicle exports. During 2006, South Africa’s share of global production rose to 0,85% up from 0,79% in 2005.
• Automotive sector contribution to South Africa’s Gross Domestic Product during 2006 determined at 7,53%
• Aggregate industry employment remains stable, close to record levels. Some pressure on industry employment expected during the second/third quarters.
• 2006 industry capacity utilisation remained above international norms. Lower capacity utilization in the new car production sector apparent during the first quarter of 2007.
• Domestic sales expected to grow more modestly in 2007, growth likely to be constrained as a result of tighter monetary conditions and vehicle price inflation.

NAAMSA OFFICES: PRETORIA

 N8/1
15^th May, 2007

The Director-General
Department of Trade and Industry
Private Bag X84
PRETORIA
0001

Dear Sir,

QUARTERLY REVIEW OF BUSINESS CONDITIONS : NEW VEHICLE
MANUFACTURING INDUSTRY : QUARTER ENDED 31^ST MARCH, 2007

NAAMSA submits the following report on business conditions in the South African new motor vehicle manufacturing industry during the first quarter of 2007.

1.   EMPLOYMENT LEVELS AND TRENDS

The number of persons employed by the South African new vehicle manufacturing industry – comprising the major new vehicle manufacturers and specialist commercial vehicle and bus manufacturers – during the first quarter of 2007 may be set out as follows –

Compared to the 39 079 positions at the end of calendar 2006, aggregate industry employment declined marginally by 191 jobs during the first quarter of 2007 to 38 888 jobs. 

 Employment throughout the industry during the first quarter of 2007 remained stable.

Whilst industry employment levels are expected to consolidate around current totals, NAAMSA is aware that a major industry employer will retrench a number of full-time and temporary staff during the second and/or third quarters of 2007 as a result of the termination of a vehicle assembly contract and the phasing out, due to emissions related compliance issues, of a light commercial vehicle which has been in production in South Africa since 1986.

2.   NUMBER OF SHIFTS

The majority of vehicle manufacturers operate on a multi-shift basis in the production of vehicles and components for domestic and export markets.  Various manufacturers operate on a single production shift basis, whilst the majority operate double shifts in selected areas such as machining, press shops, paint shop operations and body shop.  In some instances, three shift operations take place.

3.   AVAILABILITY AND PRICE TRENDS OF COMPONENTS AND RAW MATERIALS

3.1     COMPONENTS

          Imported Components

Overall, the availability and supply of imported original equipment components, during the first quarter of 2007, remained good. 

During the quarter, the landed cost of imported components was affected as a result of further modest exchange rate depreciation.  Oil based products - rubber, plastics, lubricants - and aluminium continued to be affected by fluctuations on international markets and exchange rate movements. 

          Local Components

During the first quarter of 2007, the availability of locally produced components remained satisfactory.

Labour, steel and fuel cost increases continue to impact on prices of local components.

3.2     RAW MATERIALS

          Imported Materials

Generally, the availability of imported raw materials, where applicable, remained good.  Rising global commodity prices continued to exert upward pressure on costs.

Prices of imported steel showed upward momentum during the quarter, after having stabilized during the fourth quarter of 2006.

          Local Materials

Local raw material price movements continue to mirror international pricing trends. Availability remains good.  Local steel availability showed improvement during the quarter.

Substantial local automotive steel price increases affected the local stamping and component supplier base.

4.   UTILISATION OF PRODUCTION CAPACITY

Average motor vehicle assembly industry capacity utilisation levels, for the periods indicated, may be illustrated as follows – 

With the exception of the car production sector during the first quarter, industry average capacity utilisation levels continued at relatively high levels.

5.   NEW INVESTMENT/INVESTMENT APPROVALS : 2006 ACTUAL AND 2007 PROJECTION

NAAMSA reports the industry’s aggregate capital expenditure on an annual basis.   Details of actual industry capex for 2000 through 2006, in Rand millions, as well as the projection for 2007 – are as follows – 

During 2006, the industry’s capital expenditure reached a record R6,2 billion and planned investments for 2007 remain at near record levels.

The 2006 and 2007 figures may increase further since capital expenditure data from a number of specialist truck manufacturers is still awaited.

6.    BUSINESS CONDITIONS AND PERFORMANCE INDICATORS

Business Conditions : First Quarter, 2007

2007 first quarter passenger car sales at 103 997 units recorded a decline of 177 units or 0,2% compared to the 104 174 new cars sold during the corresponding quarter for 2006.  Combined commercial vehicle sales during the first quarter of 2007 at 58 622 units reflected a gain of 7 632 units or an improvement of 15,0% compared to 50 990 units sold during the corresponding quarter of 2006.  

New vehicle sales during the first quarter of 2007 reflected a mixed picture with slightly negative new car sales and continued relative strength in new commercial vehicle sales compared to the corresponding quarter in 2006.  However, the growth rate in the case of the new car segment slowed significantly.

New Vehicle Export Performance :  2006 and 2007 Projection

2006 export sales of South African produced motor vehicles rose to 179 859 units compared to 139 912 new vehicles exported during 2005 – an improvement of 39 947 units or 28,6%.

Higher projected exports of light commercial vehicles should result in record industry export sales during 2007.  Overall exports are projected to improve by about 11,5% year on year. 

The following annual vehicle export statistics summarize the industry’s past and projected export sales performance -

2006 Automotive Sector Contribution to GDP

Based on research by Econometrix (Pty) Ltd, the automotive industry’s contribution to South Africa’s Gross Domestic Product during 2006 has been calculated at 7,53% versus a revised figure for 2005 of 7,46%.

South Africa’s Automotive Industry’s Performance in a Global Context

World new motor vehicle production in 2006 reached 69 212 755 units.  This represents an increase of 2 661 708 units produced or 4,01% compared to the 66 551 047 new vehicles produced globally during 2005.  The South African vehicle manufacturing industry’s share of world production – as indicated by the following figures – has been rising steadily in recent years.

Prospects for 2007

N.M.W. VERMEULEN
DIRECTOR

Attachment 1 - Industry Vehicle Sales, Export and Import Data :  1995 - 2010
(click to view)

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